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M. Gregg Bloche and David M. Studdert A Quiet Revolution: Law As An Agent Of Health System Change Health Affairs, March/April 2004; 23(2): 29-42. [Abstract] [Full Text] [PDF] [Reprints & Permissions]

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What about state regulation?

Alan Bloom   ( 9 March 2004 )

Effect of Regulation on HMOs' Competitive Advantages

Lawrence J Rose   ( 15 March 2004 )

Re: Effect of Regulation on HMOs' Competitive Advantages

Alan Bloom   ( 22 March 2004 )

What about state regulation? 9 March 2004
Alan Bloom, General Counsel Maxicare Send comment to journal: Re: What about state regulation? Legal{at}Maxicare.com Alan Bloom	The authors of "A Quiet Revolution" put great emphasis on court decisions as the key area of law that would impact the demise of HMOs. A more important area is state law and regulation. In the more than 30 years since the Federal HMO Act became law, the states have passed thousands of laws concerning benefits, access to services, grievance response, and a wide variety of other areas. These have all greatly increased the cost of an HMO's operations, and, especially in the case of coverage for out-of-plan services, significantly eroded many of the cost contract mechanisms that a health plan had put in place. Many of these requirements did not apply to the competitors to HMOs, employer-sponsored health programs (because of ERISA) or indemnity insurers. It is state law and regulations more than court decisions that extinguished the HMO "experiment."
Effect of Regulation on HMOs' Competitive Advantages 15 March 2004
Lawrence J Rose, Partner Epstein Becker & Green, PC Send comment to journal: Re: Effect of Regulation on HMOs' Competitive Advantages lrose{at}ebglaw.com Lawrence J Rose	The idea that the competitive advantage of HMO premium rates was undermined by state regulations fails to recognize that in California at least, the regulations were most commonly applied across the board. Changes to the Knox-Keene Act (our HMO statute) were accompanied in virtually every case by changes to the Insurance Code, which imposed identical obligations on indemnity carriers -- e.g., mandated benefits, restrictions on experimental therapy exclusions, external review, etc. Neither should we deny that HMOs did obtain a competitive advantage "because they denied or restricted care." Otherwise, why would this industry be called "managed care"? Certainly we hope that HMOs only denied unnecessary care and only restricted irrational care, but certainly we must acknowledge that these companies intended to, and presumably did, obtain advantages by managing care. In fact, the ability to manage care may have provided a significantly greater advantage than the ability to obtain provider discounts. Indemnity carriers in California have had the option of organizing as PPOs to obtain the same "group discounts" that more tightly managed carriers had; Blue Shield of California is arguably a model for this type of organization, but many publicly traded indemnity companies have also offered PPO and EPO products in California. Moreover, indemnity plans also had the opportunity to obtain the ultimate "provider discount" -- by paying under their own fee schedule (like "UCR") and simply ignoring billed charges despite the balance that the insured has to pay. One possible explanation for the erosion in the competitive advantage for HMO premiums might be that the changes in physician practice patterns required by HMOs ultimately inured to the benefit of indemnity plans -- the adoption of a more rational practice, such as a primary care physician's decision to omit unnecessary complete blood counts (CBCs), is likely to spread across that physician's entire patient population, until it was applied without regard to the patient's coverage. As the Health Affairs authors observed, HMOs served as the lightning rod for the public's reaction to these changes; certainly HMOs were used as the scapegoat in the legal proceedings that reaction engendered. Plainly, the HMOs' loss of their competitive advantage is multifactorial; none of this gives any attention to the role of physician groups and other financial intermediaries. Nevertheless, the bottom line may well be that Americans just didn't like having their care managed.
Re: Effect of Regulation on HMOs' Competitive Advantages 22 March 2004
Alan Bloom, General Counsel Maxicare Health Plans, Inc. Send comment to journal: Re: Re: Effect of Regulation on HMOs' Competitive Advantages Legal{at}Maxicare.com Alan Bloom	I do not agree with Lawrence Rose. HMOs were required to provide basically unlimited services, whereas insurers were allowed limits, caps on benefits, and large deductibles. It is true that many mandates passed by the legislature applied to both HMOs and insurers, but insurers had an ability to limit overall benefits and thus keep premiums down. More importantly, those mandates (such as the requirement to cover Viagra) came from the regulatory agency, not the legislature, and the Department of Managed Health Care was far more agressive than the Department of Insurance. Finally, HMOs were also competing with employer sponsored plans that did not have to meet any state requirements for benefits. The original HMO concept involved a large number of entities competing on benefits, price, delivery systems, and other areas with many different kinds of "products" and prices. Sadly, from the strict requirements of the Federal HMO Act through state laws and regulations and ending with the courts, HMOs were forced into a similarity that made true competition an illusion.